Epping Forest District Council Appendix III v4 Market Values & Assumptions Research Stage 2

153 Pages·2017·8.34 MB·English

For: Epping Forest District Council

Appendix III v4

Market Values & Assumptions Research

Stage 2: Update Assessment of the

Viability of Affordable Housing,

Community Infrastructure Levy

and Local Plan

Dixon Searle Partnership

The Old Hayloft, 28C Headley Road,

Grayshott, Hindhead, GU26 6LD
www.dixonsearle.co.uk
Epping Forest

Contents Page
Introduction 1
Economic Context / Housing Market Context 2
Residential Market Review 17
- Land Registry New Build Data 17
- Land Registry Re-sale Data 32
- Zoopla Average Values and Analysis 71
- DSP New-build housing asking price research and analysis 73
- Overall Market Analysis / Residential Values Summary 78

Sheltered Housing Research 80
Commercial Economic Context 81
Yield Guide 88
Commercial Values Research 90
- CoStar sourced data analysis 90
- VOA sourced data analysis 92
Stakeholder Consultation 93
Land Values Economic Context / Research 98

Notes:
CoStar property resource extracts for research base follow the above.

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1.0 Introduction

1.1 Referred to within DSP’s Viability Assessment main report, this document – Appendix III
- provides an overview of the research undertaken into property values (residential
only), land values, general market commentary for both residential and commercial
property, together with the wider economic conditions – generally building on and
updating from the previous Stage 1 work carried out in 2015. Collectively, this research
aims to help inform the assumptions setting for the residential and commercial
appraisals and provides background evidence by building a picture of values and the
variation of those within the Epping Forest District.

1.2 This report will also provide the Council with an indication of the type and sources of
data that it could monitor – revisit and update to further inform its ongoing work where
necessary in the future. Doing so would provide valuable context for monitoring the
delivery subsequent to setting policy positions and aspirations.

1.3 It should be acknowledged that this is high level work and a great deal of variance may
be seen in practice from one development to another (with site-specific characteristics).
This data gathering process adopted by DSP involves the review of a range of
information sources, so as to inform an overview that is relevant to and appropriate for
the project context. The aim here is to consider changes and trends and therefore
enable us to assess with the Council an updated context picture so far as is suitable and
practically possible.

1.4 This Appendix uses a range of extracts and quotes (shown in italic text to distinguish
those externally sourced information from DSP’s commentary and context / analysis),
with sources acknowledged.

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2.0 Economic / Housing Market Context

Bank of England

2.1 The official Bank Rate (Base Rate) was increased from 0.25% to 0.5% in October 2017,
for the first time since August 2016. The Agent’s Summary of Business Conditions (as of
September 2017) stated:

 ‘Households had responded to squeezed incomes by trading down or focusing on
essential purchases. As a result, demand growth had slowed across a number of
consumer-facing sectors, and modest nominal consumer spending growth primarily.
 Investment intentions indicated weaker growth within services, but were more
positive for goods exporters.
 Growth in labour costs per employee had been subdued, with settlements clustered
around 2% to 3%. Recruitment difficulties remained elevated, with conditions
becoming very tight for some skills.
 The impact of past falls in sterling on consumer goods price inflation appeared to
have reached its peak. Consumer services price inflation was steady overall’.

Office for National Statistics (ONS) – August 2017

2.2 The following extracts provide a high-level summary of the UK HPI for August 2017: -

 ‘Average house prices in the UK have increased by 5.0% in the year to August 2017
(down from 4.5% in the year to July 2017). The annual growth rate has slowed since
mid-2016 but has remained broadly under 5% during 2017.
 The average UK house price was £226,000 in August 2017. This is £11,000 higher
than in August 2016 and £1,000 higher than last month.
 The main contribution to the increase in UK house prices came from England, where
house prices increased by 5.3% over the year to August 2017, with the average price
in England now £244,000. Wales saw house prices increase by 3.4% over the last 12
months to stand at £150,000. In Scotland, the average price increased by 3.9% over
the year to stand at £146,000. The average price in Northern Ireland currently stands
at £129,000, an increase of 4.4% over the year to Quarter 2 (Apr to June) 2017.
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 On a regional basis, London continues to be the region with the highest average
house price at £484,000, followed by the South East and the East of England, which
stand at £325,000 and £288,000 respectively. The lowest average price continues to
be in the North East at £131,000.’

Land Registry

2.3 The August 2017 Land Registry House Price Index Report (published 17th October 2017)
provided the following information, in summary, in terms of market trends:

2.4 Report headlines for August 2017:

 the average price of a property in the UK was £225,956
 the annual price change for a property in the UK was 5.0%
 the monthly price change for a property in the UK was 0.5%
 the monthly index figure for the UK was 118.5

2.5 Economic Statement:
 ‘In terms of housing demand the Royal Institution of Chartered Surveyors’ (RICS)
residential market survey for August 2017 reported that headline price
expectations remain subdued in the near term. However, at the 12-month
horizon, prime central London remains the only area in which prices expectations
are negative. In terms of demand, there was little change in buyer enquiries
during August, continuing a streak of flat or modestly negative readings into a
ninth consecutive month.
 The UK Property Transaction Statistics showed that the number of seasonally
adjusted transactions on UK properties with a value of £40,000 or greater has
increased by 6.6% between August 2016 and August 2017.However, between
July 2017 and August 2017, the number of seasonally adjusted property
transactions decreased by 0.5%.
 Looking closer at regional levels of the UK, the largest annual growth was in the
North West at 6.5%. This was followed by the South West, East of England and
the East Midlands; all of which had a growth rate of 6.4% in the year to August
2017. The lowest annual growth was in London, where prices increased by 2.6%
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over the year. This is the 9th consecutive month where the growth in London
house prices has remained below the UK average.
 On the supply side, RICS reported that the new sales instructions net balance was
at -1% for August 2017, compared with -11% in July 2017; this was the least
negative reading since February 2016. RICS also reported that the new sales
instructions net balance has turned progressively less negative in each of the last
three months.’

2.6 The August 2017 report stated: -

For England overall:
 Annual change in average house prices 5.34% (positive)
 Monthly change in average house prices 0.71% (positive)
 Average price £243,520

For the South East overall:
 Annual change in average house prices 4.84% (positive)
 Monthly change in average house prices 1.06% (positive)
 Average price £324,983

For Epping Forest District overall
 Annual change in average house prices 7.05% (positive)
 Monthly change in average house prices 1.17% (positive)
 Average price of £473,921

2.7 The above latest available data (to August 2017) indicates that average house prices in
the Epping Forest District, viewed on an annual basis, rose more than in both England
and the South-East region overall. However, at this level, the latest data indicates a
slowing of house price increase on a monthly basis although sales volume continues to
rise. Since the date of the previous Stage 1 work carried out in 2015, according to the
Land Registry, house prices have risen by approximately 34% which is equivalent to 2/3
DSP Value Levels.

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RICS Residential Market Report (October2017)

2.9 Headline reads: ‘Demand backdrop continues to deteriorate’

 “National price indicator turns flat with sentiment still downbeat in London and the
South East
 Subdued sales trends now being reported across most regions
 70% of respondent’s report sales prices are coming in below asking prices for
homes valued at £1m+”

2.10 ‘The October 2017 RICS UK Residential Market Survey shows both demand and sales
continuing to soften at the national level, with most regions displaying a flat to negative
trend in the latest results. Meanwhile, forward looking indicators are suggesting
momentum is likely to remain subdued, at least in the near term.

2.11 The national price net balance eased to +1% in October, following a reading of +6% in
both the previous two months. This measure is now consistent with a flat price trend on
a UK wide-basis, although there remains significant variation across regions. Indeed,
respondents in London continue to report downward pressure on prices, with net
balance coming in at -63% (the poorest reading since 2009). Similarly, the price gauge
remains negative in the South East (albeit to a significantly lesser extent than in the
capital), while East Anglia and the North East also returned readings below zero. By way
of contrast, the price balances elsewhere remain generally firm, with the North West of
England, Wales, Scotland and Northern Ireland all returning numbers consistent with
further house price gains.

2.12 Alongside this, the headline near term price expectations series slipped to -11%, from -
8% in September, and has now been negative in each of the last three reports. Again,
the most cautious sentiment continues to be returned by contributors in London,
although expectations are now also slightly negative in five other regions within
England. The twelve-month view is stronger in most parts however, with ten of the
twelve regions/ countries covered in the report expected to see higher prices in a year’s
time. The two exceptions are in London and the South East, where prices are anticipated
to decline and remain flat, respectively.

2.13 When contributors were asked to compare sales prices with asking prices over the past
two months, it predictably revealed greater discrepancies for more extensive homes.
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Nationally, for properties marketed at more than £1m, 71% of respondents reported
sales prices coming in below asking prices (compared with 67% the last time the question
was asked in July). Within this, 26% responded in the ‘up to 5% below’ category, and 35%
answered ‘between 5 and 10% below’.

2.14 For homes listed at between £0.5m and £1m, a combined 62% of contributors noted
sales prices were coming in lower than asking prices (compared to 57% in July). The most
favoured answer was ‘up to 5% below’ with 38% submitting this response. Finally, in
terms of homes marketed at less than £0.5m, the largest share of respondents (42%)
noted asking and sales prices were at roughly the same level, although a still significant
32% stated sales prices were up to 5% under.

2.15 In terms of activity, the New Buyer Enquiries series continued to signal a softening in
demand, with the national net balance coming in at -20% (unchanged from September).
Likewise, agreed sales were also reported to have fallen, as 20% more respondent noted
a decline in transactions (as opposed to a rise) over the month. What’s more, Wale,
Scotland and the North East were the only areas to have seen any pick-up during
October, while sales trends were either flat or negative across the rest of the UK.

2.16 Going forward, national sales expectations remain flat over the coming three months,
while the twelve-month view has turned marginally negative. When broken down,
expectations are reasonably positive in Scotland and Northern Ireland for the year
ahead.

2.17 Following a couple of months in which new instructions had held broadly stable, the
latest results point to a renewed deterioration in the flow of fresh listings coming to
market (net balance -14%). Even so, given the drop in average sales per estate agent
branch, stock levels have now risen slightly from the record low seen in June earlier this
year.

2.18 In the lettings market, tenant demand was little changed during the three months to
October (on a seasonally adjusted basis), while new landlord instructions remained in
decline. Rental growth projections are modestly positive for the three months ahead (net
balance +11%). Over the next five years, rents are anticipated to rise by an average of
around 3.5% per annum, nationally. This compares with price growth projections of just
above 1% over the same timeframe. Meanwhile, London remains the only area in which
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twelve-month rental growth projections are negative, with tenant demand still lacking
momentum in the capital.’

Savills: Residential Property Forecasts – Autumn 2017

The Six Factors that underpin our housing forecasts
2.19 ‘Forecasting house prices is not for the faint hearted. Getting it right presupposes you
have made the right economic assumptions, can predict the direction of government and
Bank of England policy and have the ability to foresee the fickle nature of buyer
sentiment.And yet there is plenty we do know, or can predict with confidence, that allows
us to best estimate the future of the housing market. In particular, there are six key
factors (right) that influence our forecasts.

2.20 They show how the UK housing market has many moving parts. How we occupy our
property changes over time and between generations. That means house prices, which
we consider at a regional and national level on page 4, are just part of the picture.
Transaction levels can be as much of a variable, whether across the market or among
different groups of buyers.

1. In the short term, there will be uncertainty over what Brexit means for the UK
economy and, just as importantly, for individual households’ wealth and financial
security. While it will take time for the precise impact to become clear, this
uncertainty will make buyers more cautious in the short term at least.
2. Mortgage interest rates in the UK are likely to rise over the next five years. That
is likely to put a squeeze on the amount people can borrow in an age of mortgage
regulation. Dramatic increases in the cost of borrowing, that would create undue
financial stress on households, are unlikely.
3. Buy-to-let investors are now beginning to feel the effect of the mortgage
regulations that owner-occupier have lived with since 2014. They also now bear
greater stamp duty costs and, unless there is a chance of political heart, will
increasingly be affected by restrictions on income tax relief.
4. London has shown much greater house price growth than the rest of the country
for the majority of the past decade. So, it is likely to be more constrained than
the rest of the country by factors above.
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5. In previous cycles, we have always reached a point where house price growth in
the north of the country exceeds that in the South. In the past, it was facilitated
by a strong economy or relatively unrestricted access to mortgages.
6. We are not building enough homes of the right type in the right places to meet
demand. However, there seems to be an increased political desire to address this.

2.21 We expect house price growth to slow next year as uncertainty weighs down the market.
There is capacity for growth later on, but this will be tempered by interest rate rises. This
means that we expect UK house price growth to be limited to 14% in total over the next
five years, half the level seen over the last five.

2.22 What’s holding back growth? Right now, uncertainty. With the UK’s future relationship
with the EU up in the air, we’ve seen the UK’s credit rating downgraded, the pound
weakened, and the economy subdued.Inflation has cut into people’s earnings, with the
ONS reporting that incomes fell by 0.4% last year in real terms. Against this economic
backdrop, there are no strong drivers for house price growth over inflation next year.

2.23 What about the following year? We expect the market to return to growth in 2019-20,
as employment growth, wage growth, and GDP growth swing back towards trend levels.
But in the longer term, we will face the impact of interest rate rises. Any rise in the Bank
of England base rate, no matter how gradual or limited, will increase the cost of
borrowing for households with a variable-rate mortgage. It will also hit households
looking to agree a new mortgage: lenders must apply an interest rate ‘stress test’ to
make sure their borrowers can afford repayments should rates rise. These new tests will
push mortgage availability out of the reach of more households. This is what limits our
growth forecasts for 2021 and 2022. With mortgage affordability increasingly
constrained, any house price growth will be driven by earnings growth.

2.24 If everything is so uncertain, how do you know this is what’s going to happen to the
market? We base our forecasts on what Oxford Economics estimates is the most likely
Brexit scenario: that the UK will have an interim EU deal from March 2019, then move
to a free trade agreement. Clearly, other outcomes are possible; each having an impact
on price growth. We also assume no major Brexit-related job losses and a Conservative
minority government until 2022.

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